The ongoing blockade of the Strait of Hormuz is beginning to reverberate through the Indian real estate market, particularly in Mumbai, where developers are grappling with increased costs and delays in material supply. A recent report from ANAROCK Group highlights the significant disruptions in the shipping of construction materials, prompting vessels to reroute via the Cape of Good Hope. This detour is adding an additional 10 to 20 days to shipping times and inflating costs by INR 1.5 to 3.5 lakh per container. The implications of this situation are profound, as it threatens to affect project timelines and overall execution within the market.
According to Dr. Prashant Thakur, Executive Director and Head of Research & Advisory at ANAROCK Group, the impact of Iran's control over this vital waterway is substantial, particularly for India's shipping imports. The forced rerouting of vessels is not only delaying shipments but is also leading to rising prices for essential construction materials. Steel prices, for instance, have jumped nearly 20%, reaching around INR 72,000 per tonne, compared to INR 62,000 previously. This increase alone is set to elevate construction costs for high-rise buildings in Mumbai by approximately INR 50 per square foot. Similarly, aluminum prices have surged to around INR 3.5 lakh per tonne due to ongoing supply disruptions in Gulf nations.
The construction landscape in major urban centers like Mumbai and Delhi has already seen a 39% increase in costs over the past four years, with current averages around INR 2,780 per square foot for mid-to-luxury projects. Labour costs have also escalated, rising by approximately 25% to 40% amid a shortage of skilled workers. The Mumbai Metropolitan Region, noted for its luxury housing market, is particularly vulnerable to these escalating cost pressures, with over 10,000 luxury units currently under development.
In 2024, India recorded 59 ultra-luxury home sales valued at around INR 4,754 crore, with Mumbai accounting for nearly 88% of both volume and value in this segment. Key micro-markets such as Worli, Lower Parel, BKC, and South Mumbai remain prominent in this sector. While developers may consider increasing prices by over 5% to offset rising costs, demand in the ultra-luxury segment is expected to remain robust, bolstered by high purchasing power among buyers. However, non-resident Indians (NRIs), who represent a significant portion—15% to 22%—of high-end housing demand, face their own challenges due to travel disruptions and delays linked to the Gulf crisis, potentially slowing down decision-making processes and deal closures. Compounding this situation is the surge in oil prices, which is contributing to broader inflationary pressures and limiting the prospects for interest rate reductions on home loans.